Kenya regulates merger transactions in the wake of increased amalgamations

BY LERISHA NAIDU

Kenya introduced in late 2019 the Competition Rules, 2019 to govern the Competition Authority of Kenya’s functions under the Competition Act No. 12 of 2010.

The rules touch on some of key issues in merger transactions including merger thresholds, excluded transactions, filing
and approvals.

Any merger that will meet any of the following thresholds will now be mandatorily notifiable to the Competition Authority of Kenya (CAK): a minimum combined turnover or assets, whichever is higher, of Sh1 b and a turnover or assets, where the turnover or assets, whichever is higher, of the target undertaking is above Sh500m;

Where the turner or assets, whichever is higher, of the acquiring undertaking is above Sh10b and the merging parties are in the same market or can be vertically integrated, unless the transaction meets COMESA Competition Commission Merger Notification Thresholds;

In the carbon-based mineral sector, if the value of the reserves, the rights an associated assets to be held as a result of the merger exceed Sh10b and;

Where the undertakings operate in the COMESA region, if the combined turnover or assets, whichever is higher, or the merging parties does not exceed Sh500 million and two-thirds or more of their turnover or assets, whichever is higher, is generated or located in Kenya.

Mergers that meet any of the following thresholds may be considered for exclusion from notification, but an application for exclusion and approval of the application by the CAK is required prior to implementation of the transaction: Where the combined turnover or assets, whichever is higher, of the merging parties is between Sh500m million and Sh1b and; If the firms are engaged in prospecting in the carbon-based mineral sector, irrespective of asset value firms are engaged in prospecting in the carbon-based mineral sector, irrespective of asset value.

Excluded transactions not requiring approval of the CAK

Mergers that meet any of the following thresholds will be excluded from notification altogether; where the combined turnover or assets, whichever is higher, of the merging parties does not exceed Sh500 million; where the merger meets the COMESA Commission Merger Notification Thresholds and at least two-thirds of the turnover or assets, whichever is higher, is not generated or located in Kenya.

The CAK may require parties to an excluded transaction to notify such excluded transactions, even if it falls below the exclusion thresholds set out above, where it is likely that the transaction will substantially prevent or lessen competition, restrict trade or raise public interest concerns. In such situations, parties to the merger may seek an advisory opinion from the CAK on whether the transaction requires notification or not.

Merger filing fees were also changed. The fees now payable for merger notifications are as reflected below

Domestic Vs COMESA filing

Historically, the CAK insisted on domestic merger filings even where a merger met the COMESA regional dimension thresholds and a merger filing had been submitted to the COMESA Commission. However, in terms of the Rules, where a merger meets the COMESA regional dimension merger thresholds, undertakings shall merely inform the CAK in writing that a transaction has been notified to the COMESA Commission within 14 days of filing the notification to the COMESA Commission.

Abandonment of a merger

In terms of the Rules, parties to a notified merger shall be deemed to have abandoned the merger if they fail to respond to the CAK’s request for additional information within 21 days from the date of request. Of course, parties may also formally withdraw a merger in writing to the CAK. The filing fee paid to the CAK would not be refunded in such a situation.

Mergers implemented without the CAK’s approval

The Rules set out the factors that the CAK will take into account in determining whether a merger has been implemented without its authority. In particular, the CAK will consider whether there has been an actual integration of any aspect of the merging parties, including, but not limited to, the integration of infrastructure, information system, employees, corporate identity or marketing efforts; whether there has been placement of employees from the target undertaking to the acquiring undertaking; whether there has been an effort by the acquiring undertaking to influence or control any competitive aspect of the target undertaking’s business, such as setting prices, limiting discounts or restricting sales to certain customers or certain products and; whether there has been an exchange of strategic information between the merging parties for purposes other than valuation, or on a need-to-know basis during due diligence, or in ways compromising the strategic independence of each of the parties.

What remains to be seen is the manner in which these amendments will be interpreted and implemented in practice by the CAK. 

Writer is Partner and  Sphesihle Nxumalo, Associate, Competition and Antitrust Practice, Baker McKenzie Johannesburg

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